On Oct. 30, 2025, S&P Global Ratings raised its long-term foreign and local currency sovereign credit ratings on Mongolia to 'BB-' from 'B+'. The outlook on the long-term rating is stable.
At the same time, we affirmed our 'B' short-term foreign and local currency sovereign credit ratings.
We also revised the transfer and convertibility assessment to 'BB' from 'BB-'.
Outlook
The stable outlook on the long-term sovereign rating reflects our view that Mongolia will sustain robust economic expansion and keep fiscal deficits low over the next 12-24 months. We expect broad policy continuity despite recent domestic political developments.
Downside scenario
We could lower the ratings if Mongolia's economic growth trajectory is derailed, bringing economic growth down to unexceptional levels when compared with economies at similar levels of average income.
The ratings would also come under pressure if Mongolia's fiscal policy anchors weaken, resulting in persistently wider deficits and an increase in net general government debt to more than 30% of GDP.
Upside scenario
We could raise the ratings on Mongolia if its external settings and fiscal position improve further, such that narrow net external debt declines to less than 50% of current account receipts and the average annual change in net general government debt falls below 1% of GDP on a structural basis. This scenario would be underpinned by continued strong growth in the mining sector and a political commitment to fiscal consolidation.
We could also raise the ratings if Mongolia materially improves its institutional settings, especially the predictability of policymaking.
Rationale
We upgraded Mongolia to reflect its improving debt metrics. Government revenue has soared over the past three years on the back of exuberant mining activity. The government ran three consecutive years of budget surpluses, enabling it to almost halve the ratio of net general government debt to GDP and significantly lower interest-servicing costs.
Mongolia has sustained robust growth in recent years, spurred by strong commodities exports. Though coal prices have weakened of late, this was offset by increased production of copper concentrate and a rebound in the agriculture sector. We continue to view Mongolia's long-term growth prospects to be stronger than that of sovereign peers with similar income levels.
Domestic politics in Mongolia are in a state of flux since the prime minister's resignation in June 2025 and the subsequent occurrences of discord within the ruling Mongolia People's Party (MPP). However, we expect policy continuity because politicians across factions are in broad consensus on the fiscal consolidation path and the economic agenda.
Our ratings on Mongolia reflect the country's elevated external imbalances and evolving institutional settings. Mongolia also faces significant vulnerabilities stemming from its concentrated economic base. We weigh these factors against the country's strong growth prospects and the government's recent record of fiscal discipline. Mongolia's steady access to concessional funding from multilateral and bilateral partners also helps to keep financing costs down.
Institutional and economic profile: Mining sector to support growth; evolving political situation unlikely to affect credit metrics
We expect Mongolia's economy to sustain strong growth in 2025, despite lower coal exports.
Economic growth over the next two to three years is likely to outpace sovereign peers' and will continue to be propelled by strong exports and foreign direct investments in mining.
We believe the ongoing political turbulence will not lead to significant changes in policymaking.
We forecast Mongolia's real GDP will increase 5.5% this year, after growth of 5.1% in 2024. The growth momentum continued in the first half of 2025, with the economy expanding by 5.7%, supported by continued coal exports, a recovering agriculture sector, and steeply rising copper exports. Mongolia's copper exports benefitted from higher production in the underground site of Oyu Tolgoi, one of the world’s largest copper mines. Additionally, household consumption continued to expand with a modest rise in wages. That, combined with continued government spending, should sustain the economic expansion.
China's demand for coal from Mongolia has risen. China has in recent years increasingly turned to Mongolia for high-quality coking coal used in steel production, reflecting geopolitical tensions. Mongolia's export volume of coal reached all-time highs of more than 80 million tons in 2023 and 2024, more than double the level in prior years.
However, the momentum in coal exports has slowed this year, with 58.4 million tons of coal exported in the first nine months; coal prices have also moderated since the start of 2025. However, the weakness in coal is alleviated by a substantial 45% year-on-year increase in production of copper concentrate to 1.45 million tons in the eight months, amid steady copper prices. Agriculture and livestock, which underperformed in the past two years due to severe winters, are also recovering and should help offset the weakness in coal exports.
Mongolia has a promising economic outlook, in our view. We forecast real GDP growth will average about 5.5% annually through 2028, on the back of sustained investments in the Tavan Tolgoi and Oyu Tolgoi mining projects. Simplified customs clearance at the China-Mongolia border has also eased trucking bottlenecks. The government's progress in developing new railway lines and completion of transshipping facilities will also significantly increase carrying capacity.
Nevertheless, downside risks to growth remain. Mongolia's economy is highly vulnerable to exogenous shocks due to its heavy dependence on mineral exports to China. This was evident when restrictions at the Chinese border prevented Mongolia from fully capitalizing on high commodity prices in 2022. Acute shifts in commodity cycles could also heighten volatility in economic and fiscal outcomes.
Institutional and governance weaknesses remain rating limitations. Youth-led protests in May 2025 over alleged corruption resulted in the ousting of Prime Minister Luvsannamsrai Oyun-Erdene. On Oct. 17, the newly appointed Prime Minister Gombojavy Zandanshatar was dismissed by Parliament over procedural issues in the appointment of a cabinet minister. The constitutional court has since reversed the decision and reinstated Zandanshatar as prime minister.
We continue to monitor closely these evolving events. Our base case remains that the government's economic policies and fiscal stance will be unchanged regardless of the potential shuffling in political appointments in the coming weeks. This is because key agendas such as fiscal prudence, promoting foreign investments, and prioritizing infrastructure continue to have wide support across the political spectrum.
Flexibility and performance profile: Commodity boom has improved fiscal settings and allowed rapid deleveraging; external position has also benefitted but remains weak
Mongolia's fiscal position has improved materially in recent years, and the government will likely maintain modest deficits to support the economy.
External indebtedness relative to current account receipts has declined, but external metrics remain weak.
The sovereign's steady access to concessional funding mitigates some credit risks associated with elevated levels of external indebtedness.
After consecutive years of fiscal surpluses over 2022 to 2024, Mongolia is likely to have a small general government deficit this year as declining exports weigh on revenue. Over the next two to three years, we envisage execution capacity will catch up to the larger revenue base. Therefore, we project modest deficits throughout our forecast horizon. Even so, we expect public debt ratios to improve as net general government debt averages 28% of GDP through to 2028 (and on a declining trend) on the back of strong economic expansion and moderate increases in spending.
Mongolia's government receipts increased on average by more than 30% annually over the past three years as windfall profits from the minerals sector filled fiscal coffers through royalties, dividends, and corporate taxes. Our forecast for a deficit of 0.5% of GDP this year is in line with the supplementary budget passed in August 2025. The initial budget projected a balanced position of 0% of GDP. The amended budget expects dampening of government revenues by Mongolia tugrik (MNT) 3.3 trillion on weaker coal prices. To counter the revenue shortfall, the government is reducing nonessential spending and has halted financing for uncontracted projects after May 2025. The estimated savings from these measures is about MNT2 trillion (2% of GDP).
We expect Mongolia to record modest fiscal deficits averaging 1.3% of GDP over 2026-2028. Government spending will remain high as authorities continue to support the economy through social benefit and infrastructure projects. That said, we believe deficits will be contained because an amendment to the Fiscal Stabilization Law will anchor prudence. In addition to the existing rule of structural deficits of not more than 2% of GDP, the amendment mandates a "base" fiscal surplus of at least 2% of GDP from 2025. This is after including net new borrowings; the surpluses can only be used to pay down government debt.
High nominal GDP growth alongside fiscal consolidation has enabled Mongolia to significantly reduce its debt burden. The ratio of net general government debt to GDP declined by 35 percentage points to 32% of GDP in 2024, from the 2020 level. We forecast this ratio will decline further to 31.2% in 2025 and stay less than 30% from next year onward. Robust revenue growth has also enabled Mongolia to reduce its debt-servicing cost, as measured by the ratio of government interest payment to revenue. This has gone below 5% since 2022 and we expect it to stay so. A substantial concessional component caps Mongolia's borrowing costs.
Nevertheless, Mongolia's fiscal outcomes can be volatile, driven by the vagaries of commodity cycles. The government's revenue base is highly dependent on the mining sector. Debt stock dynamics can, at times, be disconnected from budget performance because the bulk of government debt is denominated in foreign currencies. For example, in 2022, despite a general government surplus of 0.7% of GDP, net government debt increased by 10% of GDP because of a sharp depreciation of the tugrik.
Mongolia's financial and public enterprise sectors pose limited contingent liabilities for the government, in our opinion. This is due to the modest size of the financial sector. That said, the country's banks remain vulnerable to risks associated with an under-developed and primarily commodity-based economy.
We also observe continued weaknesses in Mongolia's regulatory framework, transparency, and disclosures. Our Bank Industry Credit Risk Assessment for Mongolia is '9' (with '1' being the highest assessment and '10' being the lowest).
Our key measure of external assessment, narrow net external debt to current account receipts, has been declining for Mongolia due to high growth in the denominator. From 184% in 2020, we estimate the ratio decreased to 81% in 2025. However, Mongolia has a much higher net liability position compared with its narrow net external debt. This is due to the country's large inflows of foreign direct investments into mining projects. We expect this ratio to remain above 250% over the next two years.
We forecast Mongolia's current account deficit will stay at 8%-10% of GDP over the next two to three years. The current account had gone into a small surplus in 2023, the first in 15 years, owing to record coal exports. But the current account reversed to a deficit last year to about 10% of GDP. Trade flows have continued so far in 2025. Mongolia's current account had a deficit of more than US$1.8 billion (7.7% of GDP) as of end-August, fueled by an increase in capital imports and slower merchandise exports on weaker coal prices. High import intensity will persist, coupled with normalization of coal demand from China and lower commodity prices.
Mongolia's external liquidity position, as measured by its gross external financing needs (current account payments plus short-term external debt), will also likely stay at more than 100% of current account receipts plus usable reserves, indicating elevated liquidity pressures. Risks associated with Mongolia's high external indebtedness and financing needs are partially mitigated by strong donor and lending support from both bilateral and multilateral partners.
Inflation in Mongolia rose in the first nine months of 2025, reaching 9% year on year in September. This is after a dip to 6.8% in 2024, from double digits in the years before. Mongolia's central bank halted in 2024 the monetary easing of 300 basis points in total. It has since hiked rates by 200 basis points in March 2025 to address rising prices.
Mongolia's central bank had previously executed quasi-fiscal spending programs on behalf of the government. Therefore, we deem the bank's independence as limited. Although the central bank has strengthened governance through reforms since 2016, its record of operational independence remains short.

Published Date:2025-10-31